Financial Markets and Institutions

Course Objectives

At the end of the course the student will have the ability to:

Understand the operations of the financial markets and their role in the economy of the country
Understand the economic factors that form the foundation of the financial system.
Understand the role of central banks and other institutions in the financial system
Understand the operation of the global money markets
Understand the operations of foreign exchange
Conduct risk analysis
Understand concepts of hedging and the derivative markets
Understand the regulatory aspects of the financial markets

Course Content

The Financial System
Financial Institutions
Financial Markets
Lenders and Borrowers

The Financial System and the Real Economy
Lending, Borrowing and National Income
Financial activity and the level of aggregate demand
The composition of aggregate demand
The Financial system and resource allocation

Deposit-Taking Institutions
The Bank of England
Banks
Banks and the creation of money
Constraints on bank lending
Building Societies
Liability management

Non-Deposit-Taking Institutions
Insurance companies
Pension funds
Unit trusts
Investment trusts
NDTIs and the flow of funds
‘Short-termism' and other criticisms

The Money-Markets
The discount market
The ‘parallel' markets
Monetary policy and the money markets
The importance of capital markets
Characteristics of bonds and equities
The supply of bonds and equities
The demand for bonds and equities
The behaviour of security prices
Reading the financial press

Interest Rates
The rate of interest
The loanable funds theory of real interest rates
Loanable funds in an uncertain economy
The liquidity preference theory of interest rates
Loanable funds and liquidity preference
The monetary authorities and the rate of interest
The structure of interest rates
The significance of term structure theories

Foreign Exchange Markets
The nature of forex markets
The efficient markets hypothesis
Interest rate parity
Other foreign exchange market rules
Alternative views of forex markets
Fixed exchange rate systems
Monetary union in Europe 

Exchange Rate Risk, Derivatives Markets and Speculation
Forms of exposure to exchange rate risk
Exchange rate risk management techniques
Derivatives markets
Comparing different types of derivatives
The use and abuse of derivatives

International Capital Markets
The world capital market
Eurocurrencies
Techniques and instruments in the Eurobond and euronote markets
The damaging effects of the international markets? Controversies for the millennium

Government Borrowing and Financial Markets
The measurements of public deficits and debt
Financing the PSNCR
Attitudes to public debt in the European Union
The public debt and open market operations
Debt management and interest rate structure 

The Regulation of Financial Markets
The theory of regulation
Financial regulation in the UK
The European Union and financial regulation
The problem of globalisation and the growing complexity of derivatives markets

Recommended Text:
Financial Markets and Institutions 4 th Edition. Peter Howells. Keith Bain. FT Prentice Hall. ISBN